India pitches for pricing flexibility in LNG contracts

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After getting Qatar and Australia to lower gas price, India on Wednesday pitched for flexible terms for LNG purchase including provision of pricing review, flexible take or pay and abolition of destination restriction clause.

Speaking at the LNG Producer-Consumer Conference here, Oil Minister Dharmendra Pradhan said the global LNG market is undergoing a major transformation driven by new supplies which has created a situation of oversupply.

"He urged the global LNG markets, in which producers and consumers of LNG have equal stakes, to join hands to design flexible terms such as pricing review, flexible take or pay, abolition of destination restriction clause in the LNG contracts," an official statement said.

These reforms, he said, are essential for developing a transparent, efficient, truly global and balanced LNG market. India, which is among the biggest importer of liquefied natural gas (LNG), has used his position to lower prices, contracted when oil was raging high, to reflect the slump in rates.

In 2015, India did not take all of the 7.5 million tonnes a year of liquefied natural gas (LNG) it had committed to buy from Qatar and instead renegotiated price of the long-term deal to save Rs 8,000 crore. Qatar also agreed to waive take-or-pay conditions on the quantities India did not take.

Last Month, Exxon Mobil Corp in principle agreed to cut price of 1.44 million tonnes a year LNG being imported from Australia's Gorgon project. It is now seeking to reopen the LNG contracts with the US.

Long-term LNG supply contracts traditionally lock-in a price that is indexed to oil rates. They have provision of buyer having to pay even if they don't take supplies and that the gas is tied to a particular destination, thereby restricting its trading or diversion to other use areas. Pradhan also held a bilateral meeting with Japanese Minister of Economy, Trade, and Industry Hiroshige Seko and discussed furthering cooperation in the hydrocarbon sector between the two nations. "They also explored joint cooperation in the areas of LNG sourcing, swapping and optimization of LNG sources and commercial exploitation of methane hydrates," the statement said.

Pradhan invited Seko to attend the 16th International Energy Forum (IEF) Ministerial meeting to be held in New Delhi during April next year. The ministers signed a Memorandum of Cooperation (MoC) on establishing a liquid, flexible and global LNG Market.

"The MoC provides a framework to cooperate in facilitating flexibility in LNG contracts, abolition of destination restriction clause and also explore possibilities of cooperation in establishing reliable LNG spot price indices reflecting true LNG demand and supply," it said. The pact, it said, would help in promoting bilateral relationship between India and Japan in the LNG sector. India and Japan are major consumers of energy in the world.

In the LNG sector, Japan is the world's largest importer and India is the 4th largest importer. Under the Japan-India Energy Partnership Initiative signed in January 2016, the two sides had agreed to work together in promoting well-functioning energy markets and affirmed to promote a transparent and diversified LNG market through the relaxation of Destination Restriction Clause.